Banking and trading split proposed in new pan-EU regime

A panel of EU officials would have sweeping new powers over member countries' financial sectors, including the City of London, under proposals being announced this month.

It would be a strengthened version of the European Banking Authority, the pan-European bank regulator, and would have ‘full decision-making powers' to impose EU law and arbitrate in disputes between Britain and the eurozone over risks posed by British banks. Its decisions would be implemented automatically unless opposed by a majority.  

The Liikanen Review, the EU investigation into European banking, is also thought likely to propose that an institution's banking and trading activities should be separated to protect its assets and avoid huge debt.

Critics, however, say this regime would impose more restrictions on business credit and reduce competitiveness among banks.

Others say panel decisions would be hugely costly to the UK government and banks if ordered to rescue a failing institution, contribute to cross-border bail-out funds or allow the EU to rule over breaches of European law.

Mats Persson, director of think tank Open Europe, said the UK government should demand stronger safeguards as the new authority would make it harder for Britain to block eurozone rules with which it disagrees.

Meanwhile, the British Bankers' Association is to give up the overseeing of the Libor rate after claims that traders manipulated it. Control of Libor may instead pass to regulators.